What that means isonce you’re endowedwith something—theeconomic term forowning it—its valueincreases. When sellersand buyers can’t seem tomeet in the middle, and the agentthinks they’re just being intransigent orjust trying to get a better deal, the agent might be missing the point.

In their heart of hearts, clients really believe the house they own is
worth far more than buyers are willing to pay.

How much of a role does emotional attachment
play? Of course, there are emotional attachments to things
we own. If you can get people emotionally attached to a co;ee
mug in a classroom in 60 seconds, imagine how emotionally
attached they get to a house where they raised their children for
20 years. But there are other pieces to it as well. For example, we
psychologists and behavioral economists know that the pleasure
of gaining something seems to be smaller than the displeasure of
losing exactly the same thing. That’s why people will never make a
bet where they could accidentally lose $20,000, but they’ll make
bets where they’ll gain $20,000. If you think about it, the seller is
losing something. A seller is looking at a potential loss: “My house
won’t be mine anymore.” And that seller anticipates that his or her
emotional reaction to the loss of that house will be much greater
than buyers anticipate that their increase in positive emotion will
be if they gain it. This is what we call the loss-gain asymmetry—it’s
just a fancy term for saying that losing a dollar feels worse than
gaining a dollar feels good.

I would imagine that a large chunk of the frustration that agents
experience is with buyers and sellers who are close but can’t
complete a deal. For sellers, they’re selling what may be the most
emotional object to which people ever become attached. I mean,
just the word “home” for human beings—and really for almost all
animals—is the most special thing in the world. It’s right below the
people whom you love. It’s the most emotional object and you would
expect people to be most irrational about it.

Seemingly small issues, like who’s taking anappliance, can lead to doubt and fear and may feellike a reason to walk away. When people are in negotiations,their honor and integrity are at stake. Somebody won’t meet themon price, and they don’t just see it as money. It suddenly becomes“that person is trying to screw me! They’re trying to use me! They’rebeing mean to me!” My guess is that more real estate transactionsthan you would imagine are lost because somebody felt insultedabout something having almost nothing to do with the economics ofthe transaction.

So is telling clients to check their emotions a
hopeless approach? I think that’s good advice, but I bet it
often falls on deaf ears. You can’t tell people to turn o; their feelings
and emotions any more than you can say, “stop understanding
English” or “stop smelling French fries.” You can’t just stop because
someone advised you to stop.

When buyers are shopping for a home, they’re
expected to think about how a place may work for
them in the future. But isn’t this a dilemma since
the future is impossible to predict? Yes, people evolve
over time in unexpected ways. They are buying something for now
but also for all of the people they will become. The question is how
will they feel weeks, months, or years from now? Buyers have to have
some insight into their own psychology, as di;cult as it is to project
ourselves in the future.

Based on your understanding of human thought,
what are some of the things going through buyers’
minds when they’re choosing a home? People focus
on making comparisons. If one home has a garage that’s 9 percent
bigger than another, that fact will loom very large to the buyers
because they are focused on the di;erence between A and B.
Interestingly, though, once they buy one of the homes, either A
or B, that di;erence will vanish. It will be utterly unimportant.
Why? Because when they walk into their house three years later,
they’re not thinking about the house they might’ve bought. That’s
gone. Well, they might be if their car doesn’t fit in the garage. But
if it’s just a small di;erence, it won’t matter [after the decision
is made]. The point is, buyers can get caught up in momentary
comparisons.

Why do people make bad decisions? There are
thousands of reasons, but I can distill it to a couple of simple
principles. Every decision has two components. First, what are the
odds that if I do this thing, I’ll get what I want? Second, how much will
I like it if I get it? Those are really the only two questions that we ever
ask when we make a decision. Will it get me where I want to be? And
when I get there, will I like it? People do a pretty bad job of answering